Businesses have many options for growth each year, but most growth initiatives fail to generate significant sales or profits. Those most likely to succeed are ones that are close, or adjacent in Zook’s words, to the core of the business. A company can achieve new adjacency growth through products or services, new customer segments, new parts of the value chain, distribution channels, business and geographies. For example, Nestlé has grown from its core business of infant formula and instant coffee to enter adjacent businesses such as pet food (adjacent in that they have similar customers, logistics, production, marketing and distribution), which has proved to be very successful.
The best adjacency strategies also leverage and reinforce the core business. For example, the ability of Nestlé to negotiate with retailers is enhanced by having another product sector, pet food, in which it owns and sells strong, high-quality brands. For grain traders, it may be valuable to invest in a new commodity or a more agile supply chain. For feed companies, a successful adjacent growth strategy may be adding a line of products that include heterotrophic algae. Besides seeing an increase in immunity, a decrease in mortality and increased litter size in herds, producers who utilize feeds with this type of algae will also be able to further brand their products as value-added DHA Omega-3 enriched for consumers. Another opportunity may be incorporating a line of products marketed toward odor or dust control. As our population becomes less rural and more urbanized, the industry will need to find ways to be more neighborly and accommodate environmental regulations.
A useful way to engage in this process of adjacent thinking is to take the definition of the core you have identified for your business and then ask who else might buy these products or what else would we need to do in order to get a new customer group to buy our products.
Pillar 3: Be the best at following the customer
Consumers often forget that the food and feed industries are intertwined, and that together they are part of a larger picture, the human health industry. As professor Patrick Wall, University College Dublin, Ireland, said at Alltech’s 29th International Symposium, “your jobs are so important. If something goes wrong in the food chain, the repercussions are huge. Everything an animal eats — so do we. It takes millions of dollars and years to build a brand, but can take a few seconds to destroy it.”
With headlines dominating our newspapers on horse meat contamination in Europe, E-coli spinach scares in the United States and dog treats from Denver linked to salmonella, it is more important than ever to have a traceability program in place from farm to fork for both humans and livestock. A study by AMR Research, a U.S.-based international research firm, shows recalls are more common and costly than expected — expenses often exceed $10 million per recall, with companies losing twice that much. An effective traceability system could make many of these recalls avoidable. Perhaps feed companies can look at ways to improve quality control practices. Take some time to identify parts of your state, country or region that do not currently feed your product in their operations. Why don’t they? What would you have to do to change that? The answers should be a fairly long list, and this can be your portfolio of growth opportunities.
A clear example of following the customer has been the substantial investments in China by key suppliers of McDonalds and Yum Brands (KFC), which has been driven by those restaurant chains’ demands to only receive ingredients with a similar consistency, supply chain and quality as they receive in their parent countries. As food safety becomes a real consumer concern, companies building in China are likely to bring an entire supply chain of suppliers and buyers with them.
Pillar 4: Use repeatable formulas in the business strategy
The final stage in this process is to avoid reinventing your wheel. In finding and investing in adjacent growth opportunities, your firm needs to find a way to repeat its formula for success in each new market. Nestlé, for example, has built a repeatable formula based on strong brands, premium prices and wide distribution. By implementing a repeatable formula in their business plans, companies will find internally they will have more strategic clarity, speed in recognition, decision and action, lower management complexity and more focused innovation.